Chapter 5, Problem 5ESA

a

To determine

Allocate the cost of inspection among the products by assuming that it is driven by unit-level activities.

Explanation of Solution

The calculation of the allocation rate is as follows:

$\begin{array}{c}\text{Allocation rate}=\frac{\text{Cost to be allocated (Inspection cost)}}{\text{Cost driver (Direct labor hours) }}\\ =\frac{\$360,000}{18,000\text{ hours}}\\ =\$20\text{ per direct labor hour}\end{array}$

Hence, the allocation rate per direct labor hour is $20.

The calculation of the total cost allocated for high-caliber boards is as follows:

$\begin{array}{c}\text{Allocated cost (high-caliber)}=\text{Labor hours}\times \text{Per direct labor hour}\\ =4,000\text{ hours}\times \$20\\ =\$80,000\end{array}$

Hence, the allocated cost for high-caliber boards is 80,000.

The calculation of the total cost allocated for low-caliber boards is as follows:

$\begin{array}{c}\text{Allocated cost (low-caliber)}=\text{Labor hours}\times \text{Per direct labor hour}\\ =14,000\text{ hours}\times \$20\\ =\$280,000\end{array}$

Hence, the allocated cost for low-caliber boards is $280,000.

b

To determine

Allocate the cost of inspection among the products by assuming that it is driven by batch-level activities.

Explanation of Solution

The calculation of allocation rate is as follows:

$\begin{array}{c}\text{Allocation rate}=\frac{\text{Cost to be allocated (Inspection cost)}}{\text{Cost driver (Number of batches) }}\\ =\frac{\$360,000}{\text{40 batches}}\\ =\$9,000\text{ per batch}\end{array}$

Hence, the allocation rate per batch is $9,000.

The calculation of the total cost allocated for high-caliber boards is as follows:

$\begin{array}{c}\text{Allocated cost (high-caliber)}=\text{Number of batches}\times \text{Per batch}\\ =20\text{ batches}\times \$9,000\\ =\$180,000\end{array}$

Hence, the allocated cost for high-caliber boards is $180,000.

The calculation of the total cost allocated for low-caliber boards is as follows:

$\begin{array}{c}\text{Allocated cost (low-caliber)}=\text{Number of batches}\times \text{Per batch}\\ =20\text{ batches}\times \$9,000\\ =\$180,000\end{array}$

Hence, the allocated cost for low-caliber boards is $180,000.

c

To determine

Allocate the cost of inspection among the products by assuming it is driven by product-level activities.

Explanation of Solution

The calculation of the allocation rate is as follows:

$\begin{array}{c}\text{Allocation rate}=\frac{\text{Cost to be allocated (Inspection cost)}}{\text{Cost driver (Number of inspectors) }}\\ =\frac{\$360,000}{\text{5 inspectors}}\\ =\$72,000\text{ per inspector}\end{array}$

Hence, the allocation rate per inspector is $72,000.

The calculation of the total cost allocated for high-caliber boards is as follows:

$\begin{array}{c}\text{Allocated cost (high-caliber)}=\text{Number of inspectors}\times \text{Cost per inspector}\\ =3\text{ inspectors}\times \$72,000\\ =\$216,000\end{array}$

Hence, the allocated cost for high-caliber boards is $216,000.

The calculation of the total cost allocated for low-caliber boards is as follows:

$\begin{array}{c}\text{Allocated cost (low-caliber)}=\text{Number of inspectors}\times \text{Cost per inspector}\\ =2\text{ inspectors}\times \$72,000\\ =\$144,000\end{array}$

Hence, the allocated cost for low-caliber boards is $144,000.

d

To determine

Allocate the cost of inspection among the products by assuming that it is driven by facility-level activities.

Explanation of Solution

The calculation of the allocation rate is as follows:

$\begin{array}{c}\text{Allocation rate}=\frac{\text{Cost to be allocated (Inspection cost)}}{\text{Cost driver (Number of square feet) }}\\ =\frac{\$360,000}{100,000\text{ square feet}}\\ =\$3.60\text{ per square feet}\end{array}$

Hence, the allocation rate per square feet is $3.60.

The calculation of the total cost allocated for high-caliber boards is as follows:

$\begin{array}{c}\text{Allocated cost (high-caliber)}=\text{Number of square feets}\times \text{Cost per square feet}\\ =30,000\text{ square feet}\times \$3.60\\ =\$108,000\end{array}$

Hence, the allocated cost for high-caliber boards is $108,000.

The calculation of the total cost allocated for low-caliber boards is as follows:

$\begin{array}{c}\text{Allocated cost (low-caliber)}=\text{Number of square feets}\times \text{Cost per square feet}\\ =70,000\text{ square feet}\times \$3.60\\ =\$252,000\end{array}$

Hence, the allocated cost for low-caliber boards is $252,000.